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Choosing a
financial advisor can be one of the most important decisions
you’ll ever make. If your advisor’s management style matches
yours, it will allow you to sleep at night. If it doesn’t,
you may be forced to endure countless sleepless nights. In
part 2 of this series, we’ll look at the most important
aspect of all to consider when choosing an advisor.
Simply put, how will this advisor manage your money? Once
your money is invested, will they passively manage, only
reviewing your account once or twice a year? Or will they
actively manage it, having systems in place to constantly
monitor each investment and make changes whenever necessary
to protect your money, minimize your losses and maximize
your returns?
Let me explain by using the analogy of a garden. Imagine
paying someone to plant your garden and manage the harvest.
A ‘passive’ gardener would plant seeds for you, but once
they’re in the ground, they’d move on to plant their next
customer’s garden without doing much to maintain yours. They
wouldn’t bother pulling weeds, thinning out less desirable
plants, watering or fertilizing. Changes in the weather,
such as a late frost or summer drought, would pass with
little concern on their part. Passively tended gardens place
your harvest at risk and may not provide enough to last
through the winter.
On the other hand, an ‘active’ gardener should have a far
better result. They’d have picked the best seeds possible,
and carefully monitor each plant’s progress. During a frost,
they’d take action. During a dry season plants would be well
watered. If a crop turned out to be a disappointment, they’d
quickly be replaced. Each crop’s performance would be
tracked carefully so under-performers would be thinned out.
Any gardener knows that a well tended garden results in less
loss and a bountiful harvest. When your garden is being
‘actively’ tended, you can sleep at night, knowing your
harvest is less likely to result in your going hungry in the
coming winter.
Those of you who are avid gardeners wouldn’t dream of being
‘passive’ with your treasured plot of earth. But unlike the
relaxation associated with ‘active’ gardening, ‘actively’
managing your finances would be a stressful do-it-yourself
job.
When it comes to financial advisors, probably 90% are
‘passive’ gardeners; especially those recommending
Equity-Indexed Annuities and Variable Annuities. After
‘planting’ your money in high-commission products, they move
on to ‘plant’ someone else. They might look at your account
once or twice a year, unless you have new money that needs
to be ‘planted’. Once all your money is ‘planted,’ they lose
interest.
When the market or the economy turns sour, they stick to
their buy and hold strategy, telling you to hang in there.
They’ve made their money, what’s it matter to them if your
investments take a hit? They reason that the market will go
back up, but how much sleep do you lose in the process?
While ‘passive’ advisors get paid to ‘plant’ your garden,
‘active’ advisors are paid to ‘tend’ your garden. Most are
paid a small percentage fee on a yearly basis, so they are
motivated to do a good job of managing your money. If they
don’t, you can easily fire them and choose someone else. You
don’t have high commissions to earn back or surrender fees
to lock you in.
All fee-based advisors aren’t created equal. Some big firms
are moving to fee-based accounts, but in reality they’re
still holding to their passive money management strategy. If
you want someone to actively manage your nest egg, ask them
what specific systems and procedures they have in place to
monitor their clients’ accounts. For instance, my firm has a
proprietary system that constantly monitors each and every
one of our clients’ investments over 4,500 times a day,
giving our clients, whose chief concern is preservation of
capital, peace of mind.
‘Passive’ advisors can do a good job of selling investors on
their brand of money management. But ask anyone who followed
this advice in 2000-2002 how it worked out for them and I’ll
bet you’ll get a different story. Don’t settle for a passive
advisor that won’t tend your garden. Find an active advisor
to carefully watch over your seed; one who is motivated to
produce the crop you need.
Mr. Voudrie is a Certified Financial Planner and the
President of Legacy Planning Group, Inc., a Private Wealth
Management firm in Johnson City, TN. For more information
call 1-877-827-1463 or email jeff@guardingyourwealth.com. |
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